How to Sell the Future to Investors: The Role of Investor Relations Before, During and After the IPO

John Rose Member of the Executive Board, CiG (Centreinvest Group) Founder, Rose Creative Strategies
Investor relations should ideally begin years before a company registers to float its shares on a stock exchange. Unfortunately, companies often make little to no investment in investor relations until just before or even after the IPO -- sometimes ignoring shareholders, hiding from bankers and spending as little time as possible with fund managers and institutional investors.

This is beginning to change as the current economic climate has resulted in greater pressure on companies to demonstrate their viability to investors -- who are becoming increasingly skeptical and selective.

In addition to meeting the compliance requirements of publicly listed companies, businesses are also discovering that a sensible investor relations program can provide new avenues for fundraising and dramatically lower a company's cost of capital.

It's not difficult to set up a competent investor relations program. But it does rely upon experienced talent, realistic expectations, a suitable timeframe, a reasonable budget and consistent access to top management. Once these elements are in place, it all boils down to the simple fundamentals: transparency and disclosure.

Building Trust

There is a persistent myth among newly public companies that the goal of investor relations is to increase share price. But truly, it is the market that will ultimately decide what a company's value should be. So, the goal of investor relations is to build trust. This trust will generally translate into higher share prices if most other variables of company performance are positive. However, if there is no trust, then even profitable firms may find their companies unfairly valued in the marketplace.

To really win the conviction of investors, companies must demonstrate a credible and enduring commitment to investor relations. That means keeping investors, bankers and analysts informed year-round.

Trying To Please Everyone

The expectations of your company's audiences may diverge widely. There is a marked dissimilarity among, for example, the investor, the analyst and the journalist. And that's not to mention other constituents like employees, unions, or government authorities in Russia that can be especially critical.

In spite of the natural desire to address the concerns of each of these audiences, companies must also become very strict about observing selective disclosure and related information distribution guidelines prescribed by the relevant listing authority.

That's not to say you can't still cater to the needs of your different audiences by understanding their unique motivations.

The Investor

The bulk of a company's investor relations program will likely be aimed at communication with institutional and fund investors, with whom you should focus on long-term plans, being honest, and never disappointing them.

What's more, you should always keep in mind that often what's more important to investors than WHETHER they should buy your stock is WHEN to buy your stock. Investors are trying to time the market. So you should try to focus their attention on business initiatives that you can post to a calendar -- i.e. increased production or distribution stages, market trends that may boost sales during particular periods, etc.

The Analyst

Analysts, on the other hand are very focused on information consistency– because they generally have devised their models on a set of assumptions and business drivers that must be consistently updated to remain valid. So it is important to maintain a constant set of elements for all your disclosures so you may "feed" analysts' models. Any shift in strategy has to be carefully explained and presented.

The Journalist

Companies in Russia are traditionally more closely scrutinized by public opinion. Journalists are often more focused on general perceptions and may lack the experience and knowledge to understand the complexities of the capital markets. They need more explanation and attention.

So when delivering information to journalists, you should be prepared to add additional educational information to ensure that they fully understand the repercussions of announcements made by the company. You should also be prepared to meet with journalists for strictly background purposes. The extra effort by your company in helping to explain to their readers the complexity of the capital markets will be rewarded.

A Two-Way Street

Companies can also use their interaction with investors, analysts and media to bring information back into the organization. There is no reason to make investor relations a one-way street.

Investors, analysts and journalists often have a broad view of the market and may be less optimistically biased than internal management. This means they can provide perspective as well as competitive and market information. It also helps to build a closer bond with these stakeholders and shows that you value their opinion.

Most important is to create an open dialogue with analysts and investors. In good times and in bad, investor relations should be a two-way communications process whereby management receives feedback from investors and investors are sent information that helps them make a decision. Without this flow, the investor relations process will be flawed.